The Tory ‘dash for growth’ is doomed – it has failed not once, but twice before

Previous attempts by mid-term Tory governments to go all-out for growth also failed to go according to plan

Economic history and historians are in vogue. The recent turbulence in the markets evoked, in many, memories of the financial crisis of 2007-09, the exchange rate mechanism debacle of 1992 and the IMF bailout of 1976.

The announcement of Kwasi Kwarteng’s “mini-Budget” and its singular focus upon economic growth elicited film footage from the 1970s, accompanied by numerous accounts of a new “dash for growth”.

It’s not often that I yell at news bulletins these days, but these reports deserved it.

Why? Well, they got it wrong – the 1972-74 boom was actually the “Barber boom”, named after Anthony Barber, Ted Heath’s chancellor, who stated that the aim was “to achieve a rate of growth twice as fast as in the past decade”.

This fixation with growth is nothing new. My PhD research – published as Prime Ministers and Whitehall 1960-74 – had the search for growth as the central focus across four prime ministers of different parties. And this, during a time when growth in fact hit 3 per cent year-on-year.

Harold Macmillan, PM between 1957-63, was consumed by the need for higher growth, not least due to his experience in Stockton-upon-Tees during the 1930s (Macmillan lost his seat in 1929, only to return in 1931).

He was determined to aim for what he called a “breakout” from the constraints he believed were keeping productivity growth from matching the much higher rates seen throughout the 1950s and 1960s – most eye-catchingly in West Germany, but also in Italy, France and (later) Japan.

Macmillan was sceptical of Treasury control, reorganising it in 1962 to focus upon growth and promoting the third permanent secretary, Sir William Armstrong, above his superiors to the top job. His fourth chancellor in only five years, Reginald Maudling, was the only one who shared his approach; and the “dash for growth” began – two years before an election was needed, with the Conservatives way behind in the polls.

Even when ill-health suddenly saw Macmillan replaced by Sir Alec Douglas-Home, prime minister for only a year, the chancellor continued and engineered a boom.

Labour narrowly won the 1964 election by only four seats. They were immediately presented with doomsday estimates of a trade deficit quite beyond the realms of credibility at the time with an overvalued currency; and slammed on the brakes. They endured three years of economic crisis until they were finally forced into devaluation in 1967.

Samuel Brittan, the late Financial Times stalwart and in 1964 Labour special adviser, mused how interesting it would have been if the “breakout” experiment had been allowed to run its course.

In 1972, another mid-term Tory government facing a failing economy decided to go for massive growth. It didn’t quite go according to plan.

Edward Heath, prime minister 1970-74, had been a minister and thought the 1960s “dash for growth” had been right but not sufficiently driven through. Like Macmillan, Heath was no fan of the Treasury.

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The subsequent misnamed “Barber boom”, named after the chancellor, saw the Treasury’s influence at one of its lowest ebbs. Again, the boom was followed by a Labour government, this time after the hung election of February 1974. And, once again, the inheritance was terrible. In 1975, inflation – a lagging indicator – hit the postwar high of 27 per cent month-on-month and a year later Britain went “cap in hand” to the IMF.

What is particularly interesting to remember is that for both Macmillan and Heath, not only were their growth policies remarkably similar; but so was their main overarching panacea which they thought was going to deliver the sustained growth they so desperately desired – to join the European Economic Community.

Obviously, the European dimension to growth is now out of play, at least until the next election; while the third Conservative “dash for growth” effectively unravelled before it got going, but not before damage was done.

We will see if Labour will inherit an economic picture similar to 1964 and 1974 – or perhaps a calmer period of economic governance after the recent storm will bequeath something more akin to 1997.